[Estonia] transformed itself from an isolated, impoverished part of the
Soviet Union thanks to a former prime minister, Mart Laar, a history
teacher who took office not long after Estonia was liberated. He was 32
years old and had read just one book on economics: “Free to Choose,” by
Milton Friedman, which he liked especially because he knew Friedman was
despised by the Soviets.

Laar was politically naïve enough to put
the theories into practice. Instead of worrying about winning trade
wars, he unilaterally disarmed by abolishing almost all tariffs. He
welcomed foreign investors and privatized most government functions
(with the help of a privatization czar who had formerly been the
manager of the Swedish pop group Abba). He drastically cut taxes on
businesses and individuals, instituting a simple flat income tax of 26
percent.

These reforms were barely approved by the legislature
amid warnings of disaster: huge budget deficits, legions of factory
workers and farmers who would lose out to foreign competition. But
today the chief concerns are what to do with the budget surplus and how
to deal with a labor shortage.

Wages have soared thanks to jobs
created by foreign companies like Elcoteq of Finland, which bought a
failing electronics factory and now employs more than 3,000 people
making phones for Nokia and Ericsson. Foreign investors worked with
local software engineers to create Skype, the Internet telephone
service, and the country has become so Web-savvy that it’s known as
E-stonia.

“The spirit is so different here,” Benoit du Rey
says. “If you come to the government here and want to start a company,
they’ll tell you, ‘Good, do it right now.’ Then you can work free
without being bothered by stupid things. Here I talk to my accountant
once a month. In France, for every seven or eight workers, you need one
full-time worker just to fill out the forms for taxes and other rules.”